Disclosure: Evidence from Newsweek’s Green Companies Rankings

Thomas P. Lyon, University of Michigan
Jay P. Shimshack, Tulane University and Erb Institute Visiting Scholar

Abstract:
Corporate-level environmental information disclosure is increasingly common. We study the impact of a prominent media-generated sustainability ratings program, Newsweek’s 2009 ranking of the 500 largest US firms. Using an event study methodology, we find the rankings had a significant impact on shareholder value. Firms in the top 100 experienced abnormal returns after the information release that were 0.6 – 1.0 percent higher than returns of firms in the bottom 400. The form of the information released had significant effects as well. Nuanced environmental score variables had no independent impact on market outcomes; only the final ranking mattered. We also explore possible channels through which the rankings may have had their impact. We find suggestive evidence that private and public politics mechanisms were the most important.

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